Internet Payment Mechanisms

Group 0229

 Brad Boles Larry Solomon Linda Watson

Li Su Scott Way Eva Thomas

Introduction

The key to successful commerce is a secure and stable payment mechanism and this is a

fundamental requirement for the broad expansion of e-commerce.

History

The earliest payment systems were very simple. Since goods were bartered directly the good themselves served as a payment

mechanism.

History (continued)

As trade became more complex the concept of money/currency was introduced. In recent times cash has given way to checks and credit cards as

the principle forms of money. Today the vast majority of e-commerce in conducted with credit

cards.

Services supported by Internet payments

• Consumer bill payment

• Invoice payment

• Cash management

• Supply chain settlement

• Procurement

Two types of payment systemsIn a Payment Instruction system a stream of data is sent instructing a third party to initiate a payment. The user of this type of system never actually takes possession of anything.

In a Digital Money system a user can physically store data on an independent device that represents money that can be transferred at a later date.

UPS

Traditionally, each type of payment is handled by a different system. For

example, credit cards are handled by a POS system while EFT’s are processed

by the ACH. In the Internet environment, a universal payment system (UPS) can be developed to

support all types of payment transactions.

Old style “Internet” Banking

In this scenario the payer’s bank supports UPS but the payee’s doesn’t. Only credit card and one way EFT transactions are

supported. Validation of Payee’s funds is not done in real-time.

Current “Internet” banking

Both the payer’s and the payee’s banks support UPS. This adds support for checks, notes, real-time verification but clearing is still not done in real-time.

The goal of Internet Banking

Both the payee’s and the payer’s banks use direct connections between their UPS systems. This allows for real time clearing.

Bank Internet Payment System (BIPS)

Developed by the Financial Services Technology Consortium (FSTC)

provides a framework for UPS that maps to

existing bank processes where possible. This

system is currently being implemented at Citibank.

BIPS Supports Five Message Types

BIPS Push Payment

BIPS System Architecture

•NPP – Network Payment Protocol – XML based•EPH – Event Process Handler•PSI – Payment System Interface

BIPS Security

• Encryption from underlying transport (HTTPS , PGP, etc.)

• Authentication via digital certificates

• Public Key encryption (digital signatures)

• Event log

Future Opportunities

Micropayments

• Prices below 1 cent• Prices below the cost

of the transaction

Beyond Digital Wallets

• Third party vendor with ability to bill a user (such as ISP)

• Proxy for the transaction

• Can aggregate micro-payments

Conclusion

“Imagine Business to Consumer transactions being performed with a ‘digital wallet’ communicating with a ‘virtual cash register’ in a cyber

shop!”

BIPS Implementation

NPP Messages in BIPS

Sample BIPS Messages

Pull Payment

Sample BIPS Messages

Initiator Status Request

Sample BIPS Messages

Initiator Stop Request

Sample BIPS Messages

Feasibility Request about

a Payment

UPS Transaction Flow